- Ethereum has been a tear lately, rising more than 63% in the last month.
- Technical analyst Julius de Kempenaer explained to us why he believed the price would soar to $ 3,000.
- He also broke up on how he traded cryptocurrencies based on price momentum and relative strength.
- You can find more articles on Insider’s business page.
The price development of Bitcoin and other cryptocurrencies tends to be very volatile.
While many say the digital currency space has long-term tailwinds and a strong fundamentals investment case, some investors can find it difficult to endure its ups and downs in the short term.
For short-term investors, however, these price fluctuations can be an opportunity to make money. With the help of technical analysis, traders can spot momentum patterns that tell them when the best times to buy and sell are.
One technical analysis tool is the Relative Rotation Graph (RRG), which examines the cyclical nature of asset prices. Its creator, Julius de Kempenaer, a senior technical analyst at StockCharts (where traders can use the RRG tool), shared with Insiders how he used the contraption to predict where prices might go next.
The RRG is divided into four quadrants: pursuing, improving, leading and weaknesses. The two axes on which it is based measure price dynamics (vertical) and the relative price development to another asset (horizontal).
The following example shows the performance of the largest technology stocks in the market versus the performance of the S&P 500.
Although not perfectly circular in shape, assets usually move around the diagram, touching all four quadrants. In the graphic above, Facebook would be the safest buy, said de Kempenaer, as it is on its way to the “leading” quadrant. Buying when a stock enters the “leading” quadrant is also safe, but investors lose a large portion of profits at that point, he said.
However, the assets can change from their expected price development and offer investors further opportunities in the “leading” quadrant.
This is what is happening to the cryptocurrency Ethereum right now. In the graph below, which shows the prices for the performance of several cryptocurrencies versus Bitcoin, Ethereum is the only rate that changes wealth and travels back up, meaning it is likely to make better profits than the other cryptocurrencies in the short term (Movement to the right means greater upward momentum).
“In this universe, Ethereum stands out,” he said. “It’s a very short tail. The others are much longer. It’s the only one that moves to the right.”
When de Kempenaer notices such a trend in a cryptocurrency, he looks at the price chart in relation to Bitcoin. The price of Ethereum compared to Bitcoin shown below has an upward momentum.
“We’re breaking an almost 2 1/2 to 3 year base,” said de Kempenaer. “When a stock price breaks out of such a long base, people get very excited.”
But de Kempenaer is also optimistic about Ethereum due to its price development alone. He said he expected it to continue its surge to at least $ 3,000, based on its previous breakout range of around $ 2,000 to $ 2,500, before briefly selling to $ 2,100 in mid-April.
He said, “$ 3,000 is your first target. That comes from the height of this previous range, which is between 2,000 and 2,500. Very often you can project that range over the breakout level. We saw a bit of the same thing. when we had that hiatus over 2,000. The lowest low of that was 1,400. “
The price movement of Ethereum over the past year.
He added that its upward path of making higher highs and higher lows meant an uptrend as sellers were willing to discharge the asset only after it made new highs and buyers were willing to sell at higher prices than at previous corrections to get into it.
Another technical analyst – Katie Stockton of Fairlead Strategies – also said this week that price momentum would push Ethereum above $ 3,000.
Some of the largest banks have had heightened interest in it too, which may add to their fundamental bull fall in terms of wider adoption.